Capital Investment

HM Treasury written question – answered on 10th March 2017.

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Photo of Lord Myners Lord Myners Non-affiliated

To ask Her Majesty’s Government (1) what interest rate they use for discounting future income and expenditure when evaluating capital projects; (2) which government department is responsible for determining the rate; (3) what guidelines they use; and (4) when the interest rate was last changed.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Commercial Secretary to the Treasury

The government uses a discount rate to evaluate capital projects known as the Social Time Preference Rate. This rate is used to convert costs and benefits that occur at different points in the future to ‘present values’ thereby allowing comparison.

This rate is currently 3.5% and tapers depending on the life of the appraisal period, as set out below.

Period of years

0–30

31–75

76–125

126–200

201–300

301+

Discount rate

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

These rates are set by HM Treasury through the Green Book, which is publically available central government best-practice guidance on appraisal and evaluation. The rate was last changed in 2003.

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